Chat with Metro Man: E Sreedharan, MD-DMRCL

'A PPP model for a metro has never succeeded anywhere in the world'

By The Financial Express, 21/11/2010

'A PPP model for a metro has never succeeded anywhere in the world'

E Sreedharan, Managing Director of the Delhi Metro Rail Corporation, is the man credited with changing the way Delhi travels. In this Idea Exchange moderated by Executive Editor Unni Rajen Shanker, Sreedharan speaks of how the Metro kept its deadlines and his earlier assignment with Konkan Railways

Unni Rajen Shanker: When you look back at your stint with the Konkan Railways project and now the Delhi Metro, which was a tougher assignment and why?

The tougher and more challenging is Delhi Metro. With Konkan Railways, the main challenge was the length of the line: it passes through four states, a lot of reserved forest land and the most unfriendly, undulating terrain. The other challenge was raising funds. The government had given us one-third of the cost of the project, two-thirds had to be raised from the open market. At that time, the condition of the capital market was very poor, and raising money was very difficult. We could not raise money within the country and had to go to countries such as England, Japan and Korea to raise funds.

For Delhi Metro, money was not a problem. The problem was that it is the capital; whatever we do is directly under the gaze of the people in power?President, Prime Minister, Lt Governor, Chief Minister?everybody is aware of what we do. People here are educated, they are exposed to what other cities, countries have achieved. So expectations are very high. Also, we have to work with the least inconvenience or disturbance to the public. The technology for the Metro is highly complex. It is four times more complicated than railway technology. And tight targets had to be met; in the second phase, the target was the Commonwealth Games.

Sunil Jain: One reason why Metro is profitable is because you get sales tax waivers, excise duty waivers. How do you say that you are fully self-financed?

Our ticket revenue contributes 85% of the total revenue. The non-operational revenue, the non-fare revenue, is only 15% today. The property development or real estate revenue in DMRC is limited to very few areas. The government has not given us any land specifically for property development. We have the responsibility to pay back the loans we have taken. As much as 60% of the cost of the project is paid through loans. No metro in the world has been funded with such a large debt component. Yes, the government has given us concessions, but these are soft concessions?land given to us at a subsidised rate. During phase I and part of phase II, remission of taxes and duties have been given. But then, look at the kind of service we provide. The ticket value of Delhi Metro is the lowest worldwide, except Kolkata Metro, which is making a loss of Rs 75-80 crore per annum. We are making profits: in the current year, we expect operational profits of Rs 350 crore that's needed to pay back the loans.

Sunil Jain: When the Hyderabad Metro was coming up, you were of the view that the Delhi Metro model is the best model to follow. Now Larsen & Toubro has the contract for the Hyderabad metro; do you still think it won't work?

I am still firmly of the opinion that metros are highly capital intensive and the returns are not much, as the ticket fares have to be low. Which private party will invest its money unless he gets a return on his investment? Metro is not a financially viable proposition. The normal internal rate of return (IRR) is 1.523%. I have very grave doubts whether Hyderabad Metro can be a success or not. They are getting subsidies from the Government of India and the state government. The state government is giving land free. Larsen & Toubro has a great advantage; they have a brand name to help them raise funds.

Manu Pubby: Delhi Metro is the only public mode of transport where people are disciplined; there is no vandalism. How did that happen?

It called for a lot of effort from us, particularly educating the public that this is public property, this is meant for you, so keep it clean and respect it. Even then things were not working the way we wanted. We had to bring in punitive measures like on-the-spot fines. But I discovered that when commuters find the stations and the trains clean, they will not spoil it.

Sweta Dutta: Your term is to end in December this year and you have been requested to stay on for some more time. Have you decided on whether or not to stay on?

My term ends on December 31 and I have taken a decision to finally step down, hang up my boots. The Delhi government wanted me to stay on for another three months to see that phase three is approved and takes off. But I regret that I will not be able to continue for three months. I have been here for 13 years and I don't think any project of this type has had an executive for so long.

Sweta Dutta: Have you thought of a successor?

My succession plan is to be decided by the Delhi government. The posting of the managing director is the prerogative of the state government and the posting of the chairman is the prerogative of the Government of India. So the state government has to decide on my successor. A second level of team is available within the metro?seven functional directors, any one of them can easily step into my shoes. They are more competent than anyone in the country. If I am given a chance to nominate, I will nominate one of them. Instead of a rank outsider, who doesn't know the system; it is better that somebody who is already well-versed in the work is given the responsibility.

Coomi Kapoor: It is a common problem that in any construction project, the budgets always overrun and deadlines are never met. How did you overcome those problems?

There are several reasons but I will talk of a few points. The working culture of Delhi Metro is very different and has some unique values that we cultivate and instill in everyone. The most important thing is a sense of social accountability. We think we are here to serve the people, not to take our salary and walk away. If you ask me, my salary is not even one-thirtieth of the salary that I can command in the market.

Sweta Dutta: The Reliance-led airport metro line is a PPP. For phase III, the government is asking you to look at the PPP model for all the lines. Do you think the PPP model will work for Delhi Metro and do you think something went wrong with the airport line because of this?

A PPP model has never succeeded anywhere in the world. Some countries had experimented with it, particularly Malaysia. They had two metro systems in Kuala Lumpur by private parties. After five-six years, both the private parties declared bankruptcy and the government had to take over. Once a metro system is established, you can't wind it up, so when the company wraps up, all the liabilities have to be taken on by the government. In India, we started this in three regions. Mumbai line number one was awarded almost four years ago and today, not even 50% of the work has been completed. They are facing a lot of hurdles and in the process, the cost has gone up by at least by 50%. It will take another one and a half to two years for completion. How are they going to make it viable? In Hyderabad, it took them almost three-and-a-half years to get the first concessionaire, Maytas, which then flopped. Now they have got L&T, which is a very dependable, reliable party, but L&T will suffer in the process, according to me. The third was Delhi Metro itself. Our PPP model is for the airport line because on this line we could have a ticket fare that is almost ten times the normal fare. An air traveller is prepared to pay Rs 150-200 for the journey, for which otherwise he has to pay Rs 400 by taxi. Even here, we failed the country?this line did not open in time for the Commonwealth Games.

Sunil Jain: When will the airport line open? Are there any cost over runs there?

It is nearly ready. There have been cost overruns?and they are paying a heavy price. For the first one-and-a-half months of delay, they have to pay Delhi Metro Rs 37.5 lakh a day. After that period, they have to pay Rs 75 lakh a day as penalty to us. They did not pay but we encashed the bank guarantee and got the money. It is not a very happy thing. It happened because they don't have the expertise, they don't have the wherewithal for the construction of a metro. For Delhi Metro, we engaged people with the know-how to help us. We didn't have the knowledge to start with. Initially, we had to engage international consultants. Reliance did not do any of those things, so the problems started.

Rakesh Sinha: You said that your term ends on December 31. Would you be open to the idea of any other assignment after that?

I wear two hats. I am the president of the Foundation of Restoration of National Values. It is an NGO committed to eradicating corruption in the country, bringing change and good governance to the country. I may continue with that work.

Sanjeeb Mukherjee: You said that the operating profit you are making is being used to finance the loan that you have taken. Will DMRC be listed on the stock exchange and then be run as a corporation ?

Absolutely. We are moving towards that. We had engaged financial consultants for this and they advised that we should go to the market earlier, but I said no, we will complete phase II, start phase III and then go to the market. It may take a year or two.

Sanjeeb Mukherjee: Extending the Metro beyond Delhi to adjoining states like UP, etc, hasn't seen much success.

We want to take the Metro to Ghaziabad. We wanted to take it to Faridabad, which the Haryana government has agreed to. We have already gone to Noida?they want to take it to Greater Noida now and that is possible. Similarly, the Haryana government wants to take it to Bahadurgarh, which should come up in another four-five years.

Sweta Dutta: There have been some technical glitches in the overhead electrification lines, especially on Line 3.

Bombardier officials say they have to manufacture trains in a very short time because Delhi Metro has a high demand, so the testing period, which is usually 21 days across the world, is done in four days. There are technical glitches and that happens to every new product. What Bombardier has given us is a new product that they normally do not manufacture because our specifications are different. Our specifications suit the climactic conditions in this country and the heavy overloading that takes place in the trains. Bombardier is a good manufacturer but initially there were glitches. We have identified them and are tackling them. When you operate 2,500 trains a day and trains are run every 2 minute 40 seconds during peak hours, even one dislocation will have a cascading effect. This is what the public sees. The public has high expectations of the metro. If you miss a bus, you don't mind waiting for another half an hour. But if you miss a metro, nobody has the patience to wait for five minutes.

Coomi Kapoor: You were the first person to detect that there was something fishy about Maytas. How did you discover that and what was the official response?

We were the consultants to Hyderabad Metro. We found that they were deviating from our advice and doing certain things that were not very ethical. We smelt a rat. Immediately, we withdrew. They changed the metro system to suit a particular party and the line was being taken to a particular area where the party has a lot of land. When we found that, we said this is not correct and withdrew our consultancy.

Rakesh Sinha: If you didn't have this job, what would you have done?

I would retire to my native place devoting my life to spirituality.

Unni Rajen Shanker: What is the biggest hurdle you have faced in building the metro in Delhi?

I won't consider them as real hurdles. They were irritants and some disappointing moments. The real hurdle was the technical aspect, making a tunnel. The technical challenges were sometimes huge. The difficulty with politicians, bureaucrats, these are all part of the game. But the technical part was something which you yourself had to solve and nobody would come to your rescue.

Sunil Jain: You blacklisted Tandon Consultants after the Zamrudpur accident but then they were hired for the Commonwealth Games and were involved in the bridge collapse near Jawaharlal Nehru Stadium. Is there a central database where everyone knows that a builder has been blacklisted by one company?

I want to clarify we did not blacklist Tandon. Blacklist means he is then debarred from taking work from all government departments. He was only debarred from working with the Delhi Metro. If you want to debar them from taking work with other metros, then it is an elaborate process. If it is a serious crime, then it should be done, but not for technical lapses? they can happen by anyone. You are driving a car and meet with an accident, does that mean you should not be allowed to drive a car ever in your life? The country has a huge infrastructural agenda and the construction industry is not geared up to deal with all this.

Raj Kamal Jha: What are the things that you worry about the metro now?

No glitches; train services should not suffer. That is the most important. Safety is assured, I am not worried about that. Our system is such that nothing can really go wrong; a collision, derailment cannot take place? shouldn't take place unless someone does it with a mischief. Security is a concern, but it is being taken take care of by CISF and by our staff. What really worries me is that we should not have dislocation in train services.